Prevalence of Fisher's theory in mainstream accounting and economic research

Initial capital-income-accounting theorists

Bryer (2021) shows that in the years just before the post-1929 great crisis, Fisher was quite influential in accounting. Furthermore, as suggested by Bryer, while Fisher cannot be indicated as the only cause of that crisis, his ideas and followers may have had something to do with it. Despite his difficult experiences in the post-1929 crisis, Fisher still maintained some of his previous influence. For instance, he kept on writing books and presenting papers at the American Economic Association or the Econometric Society (which he had founded and, at some point, presided over) (Allen, 1993; Bryer, 2013b; Dimand, 2019). Moreover, he received honourary degrees and career celebrations (Allen, 1993). Furthermore, he remained in touch with politicians and United States Presidents (Allen, 1993). His death in 1947 was headline news across America (Allen, 1993; Fisher, 1956).

Indisputable, however, Fisher's reputation as a public intellectual and economist was deeply affected by the post-1929 crisis (Allen, 1993; Bryer, 2013b; Dimand, 2007, 2019; Fox, 2009; Galbraith, 1977). Yet, several researchers working in the post-1929 crises’ aftermath persisted in developing Fisher's framework in accounting, albeit Fisher's fall from grace. We describe this group as initial capital-accounting theorists. Several other researchers would disagree with them by overtly’ claiming that Fisher's theory could have a damaging impact on accounting and economics (e.g. Frankel, 1952; Simmons, 1938).

John Canning has been identified as the first person to develop a conceptual framework for accounting valuation and measurement founded explicitly on Fisherian expectations of future cash flows discounted by a rate (Chambers, 1979; Whittington, 1980; Zeff, 1999: 90). Canning's work also confuses measurement with an ad-hoc valuation, as Fisher did before him. In his ‘The Economics of Accountancy’ Canning (1929: 161, 144–145, 170), pays a large tribute to Fisher, who would himself praise the book (Fisher, 1930b). Canning was an economist by training. He focused his work on accounting for a short 4-year period, curiously around, 1929–1933, thus, featuring three years after the 1929 crisis's inception. However, Canning's work in this period was based upon his PhD in economics at the Chicago University, which he begun before the crisis in 1920. His dissertation was submitted in 1928, thus before the crisis's inception (Zeff, 2000). Zeff (2000) describes Fisher as a mentor to Canning's doctoral studies. In the preface of his book, moreover, Canning declares his large debt to Fisher's ideas: ‘I need not declare my obligation to Professor Fisher for his influence of his writings upon my thought – that obligation appears throughout the whole book’ (Canning, 1929: iv; see also Zeff, 2000).

Nonetheless, Canning would have a strong influence on later accounting researchers (Chambers, 1979; Whittington, 1980; Zeff, 1999, 2000). Since Canning, similar Fisherian views have recurrently been referred to as the economists’ notion of accounting for elements such as income, assets, capital, and liabilities (Chambers, 1979; Whittington, 1980; Zeff, 1999, 2000). Yet, Canning did not describe Fisher's views as economists’ views. Instead, he chose Fisher as the economist whose work on the subject has been the most exhaustive, and whose book ‘The Nature of Capital and Income’ would be quite useful for accountants (Chambers, 1979).

Canning was not alone in his efforts. For instance, Lindhal (1933) and MacNeal (1939) (as stated in Zeff, 1982) also promoted the Fisherian agenda, while praising Fisher's writings. Likewise, while extensively citing both Fisher and Canning, Bonbright (1937) compared methodologies to appraise property value for legal purposes. He identified four major methods of valuing property, namely, (i) actual sales price, (ii) actual or original cost, (iii) replacement cost, and (iv) capitalisation of income. Clearly, he prefers method (iv), which is Fisher's theory of value (Bonbright, 1937). As noted by Barnes (1937: 160), who reviewed his book, in Bonbright's argument the practical difficulties at ‘estimating prospective income and selecting the rate of capitalization receive only passing attention’. Generally, this problem remains unresolved by contemporary followers of Fisher's theory.

Ronald Coase would be another important contributor to the Fisherian cause in accounting and economics. Coase would himself later be an influential economist who developed the prominent mainstream economic theory about the nature of the firm (Coase, 1937), and who would obtain a Nobel prize many years later in 1991. Like many posterior researchers, Coase did not always cite Fisher when using his ideas. Nonetheless to Coase, market, values and prices are based on expectations of future economic benefits. Thus, Coase's work is Fisherian according to the test devised above. Coase (1937) is also the key reference for Oliver Williamson's mainstream transaction costs theory. Likewise, Williamson would receive a Nobel prize many years later in 2009. Through a series of 12 papers published in The Accountant, and summarised in Coase (1938), Coase tried to persuade accountants to use discounted cash flow models (current values) instead of historical costs to report equity, assets and liabilities (Coase, 1938; Parker, 1968). Clearly, Coase advocates the Fisherian framework: ‘By this phrase (‘the value of an asset’) I mean the present value of the net receipts which it is estimated will be obtained from ownership of that asset (‘discounting them by a rate of interest’)’ (Coase, 1938: 5.14, 5.28). Although Coase's definition is akin to Fisher's valuation ideal, Coase does not cite Fisher, preferring the formulation that the expressed view is the ‘common property’ of economists of the London School of Economics (LSE) at the time (Coase, 1938: 5.2, see also Napier, 2011). Hence, here we have perhaps one of the first instances where Fisher's theory is promoted while Fisher is not cited.

Coase might have been referring to another economist at LSE: John Hicks (1939, 1946) who delivered a Fisher-inspired definition of income in his book ‘Value and Capital’, while failing to acknowledge Fisher. As defined by Hicks (1939, 1946: 173, 178–179): ‘Income No. I is thus the maximum amount which can be spent during a period if there is to be an expectation of maintaining intact the capital value of prospective receipts (in money terms).’ To Hicks, the value for capital should be found by this ex-ante computation for expected income discounted by some rate as in Fisher's valuation ideal:

Any stream of values whatsoever has a capitalized value, which may now be regarded as a function of the rate of interest … we shall measure, not the rate of interest, but what may be called the discount ratio - the proportion in which a sum of money has to be reduced in order to discount it …. Corresponding to any particular level of income, we have a capital-value curve ... which shows the present value of the standard stream corresponding to that particular level of income (according to the definition of income we are using) at various discount ratios. (Hicks, 1939, 1946: 185, see also: 173–190)

According to Hicks, the income definition that is used to explain capital would have one supremely important property: As long as we confine our attention to income from property, and leave out of the account any increment or decrement in the value of prospects due to changes in people's own earning power, income ex-post (based on historical data) would not be a subjective affair, like other kinds of income; ‘it is almost completely objective’ (Hicks, 1939: 179). However, Hicks emphasised that income ex post ‘can have no relevance to present decisions’ (Hicks, 1939, 1946: 179), because, according to him, present decisions ought to be based on income ex ante. As shown above, the latter's value is computed through Fisherian discounted cash flow models.

Clearly, a similar definition for capital to that used by Hicks can be found in several of Fisher's works (Cardao-Pito and Ferreira, 2018a). Fisher also uses the discounted cash flow model to explain the value for capital, and its respective market price. Nonetheless, Hicks's lack of references to Fisher might have misled the FASB and IASB into attributing the concepts of capital-income based upon discounted projections of future benefits to Hicks (Bromwich et al., 2010; FASB/IASB, 2005). That is, unfairly, Hicks has come to be known as the founder of the capital-income view of accounting and economic value instead of Irving Fisher.

Normative accounting theorists

Normative theorists belonged to a time and movement trying to address major epistemological questions in accounting, such as its purpose, or how accounting affairs should be conducted. The expression ‘normative’ arises from their attempts to solve notable questions (Campfield, 1970; Chambers, 1976; Dyckman and Zeff, 2015; Edwards et al., 2013). This group had their heydays mostly in the decades after the Second World War, until positivists took over from them. Despite agreeing on questions, normative theorists have produced greatly divergent answers (Dyckman and Zeff, 2015; Edwards et al., 2013; Kabir, 2005).

Many researchers at that time were well informed about Fisher's conception of economic and accounting value. Though more of an economic persuasion, Parker and Harcourt's (1969) ‘Readings in the Concept and Measurement of Income’ devotes the first chapter to an extract from Fisher. Parker's (1968) notable historical perspective of the discounted cash flow model describes Fisher's application of this ad-hoc model into a valuation theory. Furthermore, it is not uncommon to find normative theorists studying Fisher (e.g. Chambers, 1971a; Ijiri, 1967).

However, several normative theorists legitimised Fisher's value theory, at least because they did not question its lack of serious supportive evidence or logical consistency. Thus, according to the test devised above, they were Fisherian in this respect. Normative theorists were convinced that accounting measurement must follow a sound normative theory. At this point, they were not persuaded that a normative theory could justify adopting Fisher's theory as the basis of accounting regulation. However, because accounting valuation was given centre stage, Fisher's theory gained notoriety as a possible framework for valuation in economics. Hence, this group was also influenced by Fisher's framework in the sense that these theorists accepted studying and discussing Fisher's framework as a valid theoretical alternative. They generally did not endorse Fisher's theory as an adequate normative theory for accounting practice and regulations. The application of Fisher's theory to financial statements received very serious criticism, including that Fisher's theory does not fit within accounting's double entry system, that his system could not produce coherent and balanced balance sheets, and his system fails to distinguish between measurement and valuation (Bryer, 2013b; Chambers, 1965, 1971a; Littleton, 1929, 1930, 1935). However, by embracing the Fisherian framework as a possible explanation for value and market prices, these researchers actively contributed to disseminating Fisher's theory on accounting.

The FASB and International Accounting Standards Committee (reformulated in 2001 into IASB) would only be created in 1973. Before that, the Securities and Exchange Commission (SEC) ruled accounting practices in the United States, though in 1938 it delegated its authority to set accounting standards to the American Institute of Accountants and the Committee on Accounting Procedure (Carey, 1969; Previts and Merino, 1998). In 1959, the American Institute of Certified Public Accountants (AICPA) created the Accounting Principles Board (APB), a forceful body that issued guidelines and rules on accounting principles. The APB was replaced by the FASB in 1973 (Previts and Merino, 1998). Nevertheless, the SEC was also a body formed in the post-1929 crisis aftermath to address and prevent future crises (Michie, 2006). As with other countries’ regulators at that time, the SEC systematically supported historical cost practices (Zeff, 1999, 2013). It regarded the departure from the objectivity of historical cost accounting as having the potential to deceive readers of financial statements (Zeff, 1999).

Several theorists have tried to develop normative principles and postulates that could explain the existing historical cost accounting practices (Ijiri, 1975; Littleton, 1953; Paton, 1922; Paton and Littleton, 1970; Sanders et al., 1938). On the other hand, normative theorists who tried to advance alternatives to historical cost practices generally made proposals based on normative principles and postulates, not on Fisherian economics. ³ However, normative accounting theorists have had an important role in advancing the Fisherian agenda because they accepted Fisher's discounted cash flow model as the valuation ideal (our test above). Their reservations were concerned with the discounted cash flow method being too subjective and impractical to be suitable for accounting measurement. For instance, Chambers’ (1965, 1966, 1968), several texts defend the view that accounting measurement issues must not be confused with valuation issues, which implies that Fisher's valuation ideal could eventually be suitable for valuation. Despite being a proponent of historical cost accounting systems, Ijiri clearly engaged with the mainstream economic approach to accounting (Ijiri, 1967; Ijiri and Noel, 1984). He was open to the idea that forecasts about the future could be published as a parallel accounting to traditional accounts, which implies the acceptance towards Fisher's valuation ideal to a certain extent (Ijiri, 1982, 1986, 1989; see also Fellingham, 2018; Fraser, 1993). He described a parallel accounting of ‘accounting for the future’ (Ijiri, 1982: 41). He also suggested: ‘Consider the power of a triple-entry system that insists on getting future events accounted for in a similar fashion (temporal triple-entry bookkeeping) or getting the reasons for changes in income accounted for (differential triple-entry bookkeeping)’ (Ijiri, 1982: 41). Ijiri described his motivation as directing ‘management's attention and sensitivity to factors at a level deeper than the level of wealth and income that has been traditionally dealt with by double-entry bookkeeping’ (Ijiri, 1986: 745). Certainly, Ijiri suggested that Fisher's valuation ideal is not entirely reliable and must be separated from cost-based bookkeeping. However, Ijiri accepted the Fisherian ideal as accounting for the future, which could be identified as an alignment with Fisher's theory. Perhaps Chambers and Ijiri were still trying to build fences against applications of the Fisherian valuation ideal in accounting practices, and, thus, trying to separate facts from forecasts in financial statements (Glover et al., 2005). Nonetheless, normative theorists like Chambers and Ijiri have, to great extent, helped legitimise Fisher's ideal for valuation purposes.

However, before long the distinction between accounting measurement and economic valuation, or between faithful and relevant information established by several normative theorists was about to be contested by the decision-usefulness researchers. Often, normative theorists did not have an effective strategy to advance their agenda (Edwards et al., 2013). Furthermore, they did not entirely understand the danger posed to their scholarship by decision-usefulness researchers trained at highly ranked schools, who they were keen to hire on the grounds of their elite academic status (Edwards et al., 2013). Yet, among other influences, decision-usefulness researchers built on the fact that various normative theorists had accepted Fisher's valuation ideal for explaining prices, markets, and capitalism.

Mainstream economics

Before we address ‘decision-usefulness’ accounting theory, we need to observe fundamental episodes in mainstream economics that may have influenced it. Currently, although it is quite common for papers published in high-profile accounting journals to reference mainstream/financial economics journals, the latter very rarely cite any journal in accounting (Bricker et al., 2003; Hussain et al., 2020; Pieters and Baumgartner, 2002). That is, mainstream accounting imports theories, models and concepts from mainstream economics literature. However, it rarely exports any new ideas back. Disappointingly, mainstream accounting research seems like a secondary division of economics.

Several mainstream economic landmarks have promoted Fisher's theory, and thus, may have greatly impacted accounting research. Fisher's view still is how mainstream economists think about capital and income (Concise Encyclopedia of Economics, n.d; Tobin, 2005). Friedman's (1966) highly influential ‘positive economics’ was later adapted into a ‘positive accounting theory’ by Watts and Zimmerman (1978, 1979; see also, Christenson, 1983; Milne, 2002; Whittington, 1987). Friedman (1994: 37) has no issue in supporting Schumpeter's (1951: 223) statement that Fisher has been ‘the greatest economist the United States has ever produced’. This is a similar position to Paul Samuelson, who described Fisher's thesis as ‘the best of all dissertations in economics’ (cited in Mirowski, 1991: 223). Friedman and Samuelson, who also gained Nobel prizes, likewise did not cite Fisher in most of their writings, seemingly taking his ideas for granted.

Among many other possible features, two mainstream economic features may have been of great relevance for accounting. The first is the reintroduction of Fisher's framework into financial economics by Modigliani and Miller (1958), who did not cite Fisher in this reintroduction (Cardao-Pito, 2021a). However, 30 years later, Miller (1988) admitted what was evident, namely, that his work with Modigliani had been based on Fisher's theory (see also Cardao-Pito, 2021a). Certainly, there were more writers at the time developing Fisherian ideas. Above we have seen the cases of Canning, Coase, Friedman and Samuelsen. Likewise, Hirschleifer (1958: 328) defended Fisher's theory of optimal investment decision while maintaining that ‘recent works on investment decisions … suffer from the neglect of Fisher's great contributions’. However, Modigliani and Miller would be the writers credited to have launched the corporate finance theory that has attributed several Nobel prizes in economics (Cardao-Pito, 2017a, 2017b, 2021a; Harris and Raviv, 1991; Myers, 2001; Pasinetti, 2012). Still, Modigliani and Miller had simply redecorated Fisher's framework as admitted by Miller (1988) himself (see also Cardao-Pito, 2021a).

Following this Fisherian lead, research papers, classes and didactic textbooks in financial economics/finance specifically define the value of a firm (or any organisation) as the set of future discounted cash flows payable to the owners of the firm's equity securities. This valuation procedure is generally called the ‘net present value’ or ‘net present worth’, an expression already used by Fisher (e.g. Brealey et al., 2010; Cardao-Pito, 2017a, 2017b; Damodaran, 2003; Ross, 2010). Every year, thousands of students at economics and business schools take courses where they are taught mainstream financial economics (Cardao-Pito, 2017a, 2017b; Fourcade and Khurana, 2013), conveying a theory that, as explained above, is biased towards organisations’ owners/shareholders. Undeniably, mainstream accounting theory is frequently linked to mainstream financial economic theory, as assumed by their major proponents: ‘This methodology (of economics, finance, and science generally) has been successful in accounting research and we feel no need to apologise for it. ‘Under this methodology, a theory is not discarded merely because of some inconsistent observations’ (Watts and Zimmerman, 1990: 150).

The second feature is the belief that efficient market prices are perfect recorders of all available information; that markets are capable of processing all information to identify organisation's future cash flows and discount rates, asset or liability, as in the efficient market hypothesis (Fama, 1970, 1990, 1998; Previts and Merino, 1998). When delivering his Nobel Prize lecture, Fama (2014: 1471) recognised Irving Fisher's contribution to an initial market efficiency hypothesis:

I turn to bonds to study Irving Fisher's (market efficiency) hypothesis that rt + 1, the time t interest rate on a short-term bond that matures at t + 1, should contain the equilibrium expected real return, E(rt + 1), plus the best possible forecast of the inflation rate, E(πt + 1).

The expression (market efficiency) is from Fama (2014: 1471). However, in his initial writings proposing this hypothesis, Fama (1970, 1990, 1998) also did not cite Fisher. Curiously, when evidence against this hypothesis was being compiled by behavioural economic studies, Fama (1998, 2014) employed a similar defence to Fisher's (1930a), on the lines that we could not be sure whether markets are efficient, because this possibility cannot be tested as we could not be sure what the correct prices would be. Evidently, this is a lame excuse, as they claim to demonstrate that markets operate according to their descriptions.

Mainstream economists, the mainstream accounting researchers who follow them, and regulators who set standards, apparently all have an idealised view of the market, wherein markets are complete and always in perfect competitive equilibrium (Whittington, 2010). Mainstream economic and accounting theories therefore deny the possibility of market failure, even when diverse indicators reveal that a serious economic crisis has occurred (Cardao-Pito and Ferreira, 2018a, 2018b; McSweeney, 2009). Thus, rather than being empirical or realistic, regulators and mainstream economic theorists seem to rely on a set of beliefs that ignore the complexity of social structures and human actions (Callon, 1998; Cardao-Pito, 2012, 2016, 2021b; Granovetter, 1985; Polanyi, 1957).

Decision-usefulness researchers

Positivist decision-usefulness researchers currently dominate accounting research. These researchers have aimed to reorient accounting towards providing useful information to those taking decisions based upon (Fisherian) economic value, that is, speculative discounted projections of future cash flow models. Decision-usefulness researchers fully endorse Fisher's valuation ideal (using our test devised above to classify someone as Fisherian). Importantly, the decision-makers preferred by this group of researchers are investors of capital seeking to increase their wealth through future income. These potential shareholders/owners whose interests are preferred in Fisher's theory of value and prices are the same as those followed in mainstream economics.

There are several ironies in the decision-usefulness researchers’ contributions to accounting. Their initial proponents claimed to be reacting against normative accounting theories, which they have gone so far as to accuse of being non-scientific (Mattessich, 1995; Whitley, 1988). Following this, it would be impossible to define what must be the purpose of accounting and how should accounting be conducted. Nevertheless, what decision-usefulness researchers see as advanced quantitative tools from mainstream economics could, they argue, produce scientific research in accounting. Ironically, while stating to be seeking empirical regularities and being against normative theories, decision-usefulness researchers have reinforced Fisher's normative theory that gives precedence to shareholders/owners’ interests (Bryer, 2013a, 2013b, 2021; Cardao-Pito and Ferreira, 2018a). However, as shown earlier, various normative theorists have contributed to the prevalence of Fisher's theory in accounting because they accept Fisher's ideal as valid for valuation purposes. Thus, while decision-usefulness researchers are directly influenced by capital accounting theorists such as Canning, Coase or Hicks, and by mainstream economists like Modigliani, Miller and Fama, they also take advantage of various normative theorists’ acceptance of Fisher's valuation ideal.

The Study Group on Business Income, organised in 1948 by the American Institute of Accountants (they became AICPA after 1957) is perhaps foundational to the decision-usefulness movement. Various prominent members such as Alexander (1950), Bronfenbrenner (1950) and Fabricant (1950) assumed a Fisherian perspective. They took the view that to businessmen (decision makers), only the economic (i.e. Fisherian) concept of capital-income is relevant for conducting business affairs. This statement was based on their belief that accountants would want to avoid responsibility for subjective judgements because they were bounded by objectivity and conservatism. However, businessmen would later accept the need to make subjective judgements based on (Fisherian) economic value to make decisions, given that market prices would be explained by discounted cash flow-type models built on projections of future income.

These presuppositions, as described earlier, have no support in logic or empirical evidence. According to Bryer (2016), during this period business leaders of large organisations launched the ‘Free Enterprise Campaign’. This campaign was also based upon Fisher's theory, without however citing the discredited investor-economist As Fisher's normative theory is in favour of investors’ interests, business leaders used its arguments against other groups of stakeholders, and, specially, workers’ unions who later themselves accepted Fisher's view (Bryer, 2016). However, when the AICPA Study Group on Business Income was launched, Fisher's theory was again at the centre of another important normative dispute.

The framework developed by the AICPA study group would be refined into a theory of accounting for investors by Staubus (1961: 11 cited by Zeff, 2013). The study group suggested that the ‘purpose of accounting is to provide information which will be of assistance in making economic decisions’, which would be related to times and amounts of future cash receipts as a result of investment relations, as in the Fisherian view. Contemporaneously, Moonitz (1961) was strongly influenced by Fisher and Canning when he suggested a set of what he termed: Basic Postulates of Accounting (Most, 1977). His work was also published by the AICPA. Postulate A-1 and C-5 see the purpose of accounting quantification and disclosure as to assist ‘rational economic decisions’, as in the Fisherian framework. Postulate B-2 claims that accounting should be founded on market prices, which could be explained by expectations of future transactions as Fisher had suggested: ‘Accounting data are based on prices generated by past, present or future exchanges which have actually taken place or are expected to’ (Moonitz, 1961: 28).

Later, Sprouse and Moonitz (1962) suggested a framework to implement Moonitz's (1961) postulates for accounting. Certainly, they received antipathy from SEC and other researchers for departing from historical costs (Zeff, 1999, 2013). Sprouse and Moonitźs proposal suggested the use of replacement costs for inventories, plant and equipment, and discounted present values for cash and its equivalents. However, they were not completely certain as to what extent the Fisherian framework could be applied. Current values were restricted to claims about future cash flows that are certain (e.g. those of a financial bond), not speculative estimates for all accounting items:

If the claims to money are uncertain as to time or amount of receipt, they should be recorded at their current market value. If the current market value is so uncertain as to be unreliable, these assets should be shown at cost. (Sprouse and Moonitz, 1962: 57)

Following these leads, Beaver (1968) suggested that accounting data evaluation must be according to the criterion of predictive ability (ability to predict events of interest to decision-makers), clearly aligned with Fisher's theory of value and market prices. This agenda was followed by several other studies at that epoch (e.g. Ball and Brown, 1968; Beaver, 1968; Gagnon, 1967; Gordon et al., 1966; Sterling, 1965). In fact, a committee of academics of the American Accounting Association (AAA) had already proposed redirecting the attention of accounting theory towards the ‘decision-usefulness’ of financial statements to owners/investors who need to make economic decisions (based upon future cash flows) (Zeff, 1999: 96; see also AAA, 1966, 1977).

The purpose of providing expedient information based upon Fisher's value for decision makers (who are or might be investors) was at the time in open conflict with the SEC and practitioners who preferred historical cost accounting to present value estimates. Likewise, this focus was not accepted by many normative theorists (e.g. Chambers, 1980, 1993; Ijiri, 2005). However, the decision-usefulness researchers’ reasoning alleges that normative accounting standards are impossible because they are dependent upon individual interests and beliefs (Demski, 1973). Hence, decision-usefulness researchers claim to eliminate normative objectives in understanding accounting's purpose or how accounting affairs should be conducted. Instead, this group suggest another purpose, namely, the ‘decision-usefulness’ of accounting information.

Years later, Watts and Zimmerman (1978, 1979) merely rebranded this already established research agenda as ‘positive accounting theory’ which had been in existence for decades. Nonetheless, Watts and Zimmerman certainly invoked a certain missionary spirit for this agenda. According to them, this research field's major purpose was to explain and predict corporate behaviour in order to prevent corporate lobbying over accounting regulations. Allegedly, normative accounting theories were developed from a ‘market’ of providing excuses for political/regulatory options, while attending to different interests and beliefs, rather than those of decision-usefulness positivists who went so far as to promise their research agenda would not be used to justify changes in accounting standards (Watts and Zimmerman, 1978, 1979). This suggests another irony, because this group had fundamental importance in promoting Fisher's normative theory that is currently inscribed upon fair value regulations.

A key strategy has been to make ad hominem attacks on proponents of theories not exclusively based on mainstream economics and, therefore, on mathematical/ quantitative methods of reasoning and utility functions. As the argument goes, only an accounting theory centred on self-interest (i.e. explained by utility functions based on Fisher's value concept, which are prevalent in mainstream economics) could provide a set of predictions consistent with observed phenomena. All other theories would allegedly be serving the vested interests of groups benefitting from regulatory change (Cardao-Pito, 2021c; Chabrak, 2012; Demski, 1973; Watts and Zimmerman, 1979).

For decision-usefulness researchers, price replica models generate discounted projections of eventual future cash flows as in Fisher's theory of value. Variations of the Ohlson model (Feltham and Ohlson, 1995, 1996; Ohlson, 1995, 1999, 2000), a discounted cash flow/net present value model, have been very influential in mainstream accounting. Thus, these models may have been influential on the norms set by accounting regulators. Decision-usefulness researchers consider projections of discounted cash flows to be accurate values, while declaring that several ‘value-relevant’ studies concluded that historical transaction (cost) accounting values are not relevant for market values (e.g. Barth et al., 2001; Barth and Landsman, 1995, 2010; Brown et al., 1999; Brown and Sivakumar, 2003; Collins et al., 1997; Holthausen, and Watts, 2001; Song et al., 2010; Venkatachalam, 1996). The prudence principle conventionally followed in accounting of anticipating the registration of losses but not uncertain future profits/income is even dubbed as ‘conservatism’, which must be explained though the light of Fisher's theory of value and prices (e.g. Hsieh et al., 2019; Watts, 2003a, 2003b) ⁴ . In these debates, likewise, Fisher's writings are not cited. These studies’ implicit conclusions are as follows: (i) historical accounting values are not market values; and (ii) because market values are ‘right’, historical accounting values are not value relevant. Therefore, such discussions are rhetorically constrained by Fisherian decision-usefulness accounting theory. These studies maintain that markets are efficient processors of all information, and that there are models based on discounted projections of future cash flows that can explain/predict market prices.

These same explanations, which had been suggested by Fisher many decades earlier, can be found in fair value accounting (Cardao-Pito and Ferreira, 2018a, 2018b). In the same manner that Fisher provided the normative theory that underlies fair value accounting standards (Bryer, 2021; Cardao-Pito and Ferreira, 2018a, 2018b), he provided the normative theory that underlies the writings from decision-usefulness researchers. Indeed, although Watts and Zimmerman explicitly promised that decision-usefulness research could not be used to justify accounting standard modifications, that promise was broken. Decision-usefulness theories following Irving Fisher are inscribed in ‘fair value’ accounting norms. Nevertheless, there is a lack of any systematic evidence that discounted cash flow models can accurately predict or explain market prices, and vice versa, or be adequate for accounting regulations (Basilli and Zappia, 2012; Bougen and Young, 2012; Bryer, 2021; Callen, 2015; Cardao-Pito, 2012, 2016, 2021a; Cardao-Pito and Ferreira, 2018a, 2018b; Mouck, 1992; Shiller, 1981, 1984, 2005).

Accounting journal rankings

Currently, the editorial boards of prominent journals are dominated by graduates of elite schools championing a mainstream economics-based positivist research paradigm. These individuals shape the agenda in accounting research (Lee, 1997; Williams et al., 2006). With a few notable exceptions, such as this journal and others, the Association of Business Schools (ABS) gives much higher rankings to journals based on decision-usefulness accounting theory compared to other publications, thereby further constraining the discussion of accounting issues (e.g. Andrew et al., 2020; Donleavy, 2022; Gerdin and Englund, 2019; Hussain et al., 2020; Rowlinson et al., 2015; Tourish and Willmott, 2015). This control over research resources has real effects on accounting scholars’ careers, who can be advised to adopt decision-usefulness perspectives or else not receive resources (e.g. Hopwood, 2008; Hussain, 2011; Hussain et al., 2020; Sangster, 2011). The refusal of decision-usefulness researchers to accept any other theoretical approach may be a factor in the dominance of Fisher's theory. By completely disregarding alternative theories and perspectives, mainstream researchers create an echo chamber environment in which their arguments go unchallenged.

Standard setters

Regulatory changes have resulted from a series of cross-border developments, which originated from a conjuncture of financial globalisation and a particular mix of international institutional configurations and capacities (Bhimani, 2008; Posner, 2010). Many national governments began to outsource (or privatise) the production of accounting norms to single private agencies (Bengtsson, 2011; Oehr and Zimmerman, 2012; Sunder, 2011), which have become very powerful. For instance, the IASB produces accounting norms that are used by all countries in the European Union, as well as Australia, Canada, Hong Kong, India, Japan, Russia, Singapore, South Africa, Taiwan, Turkey, and other countries. The FASB in the 2000s produced accounting norms for the United States and was collaborating with the IASB to produce common regulations. These major regulators may have been influenced by decision-usefulness accounting and economic research to change accounting regulations, with little debate outside specialised financial circles (Bromwich, 2007; Masocha and Weetman, 2007; Mehrpouya and Salles-Djelic, 2019; Mouck, 1992; Power, 2010; Pucci and Skærbæk, 2020; Ravencroft and Williams, 2009; Zhang et al., 2012).

The ascendency of the decision-usefulness agenda in regulatory bodies that set accounting standards, such as IASB and FASB, is rather well documented and need not be repeated here. It is currently reflected in the conceptual framework that defines regulators’ views about the purpose of accounting (Bhimani, 2008; Mehrpouya and Salles-Djelic, 2019; Pelger, 2016; Power, 2010; Ravencroft and Williams, 2009; Young, 2003; Young and Williams, 2008; Zeff, 2013, 1999).

Furthermore, it has been well documented that IASB and FASB's staff members have been continuously seeking to persuade corporations, practitioners, researchers, and other stakeholders that the regulators’ work is valuable, appropriate, useful, ‘right’, and supported by market imperatives (Bhimani, 2008; Young, 2003; Young and Williams, 2008). Undeniably, real-politic and the composition of Boards’ staff and members can materially affect the course of standard-setting projects (Pelger, 2016: 15).